Religion is good for business, study shows

Dec 20, 2013

Those looking for honest companies to invest in might want to check out businesses based in more religious communities, suggests a new paper from the University of Toronto's Rotman School of Management.

The study found that businesses with head offices in places with high levels of "religiosity" were less likely to experience stock price crashes as a result of not disclosing bad financial news. And it didn't matter whether those at the top were religious or not. Just being in a town where social norms are influenced by religious codes of behaviour was enough to rub off on the companies operating there.

"There is nothing quicker to losing your good name in a religious milieu than doing something like withholding bad news and not being upfront. There's a real cost," said Prof. Jeffrey Callen, who holds the Joseph L. Rotman Chair in Accounting, who co-wrote the paper with former graduate student Xiaohua Fang, now an assistant business professor at Georgia State University.

The researchers used data from 1971 to 2000 about the number of churches and church membership in U.S. counties from the American Religion Data Archive. They compared this with information about stock returns and accounting restatements for U.S. companies, including where those companies were headquartered.

Previous research has shown that religious managers are less likely to manipulate the flow of information and a religious setting tends to foster more whistleblowers within a corporation, raising the risk of manipulators getting caught.

The researchers' own finding of a strong correlation between religiosity and a low risk of stock price crash due to bad news "hoarding," was particularly strong among companies with weak governance.

"Where you have strong corporate governance, religion doesn't need to kick in," said Prof. Callen. "But where there is poor corporate governance, religion substitutes for it."

Although Prof. Callen is an orthodox Jew, he was "agnostic" about the topic prior to his co-author suggesting it, and was surprised that the findings were so strong.

However, the paper should not be taken to suggest that religious people are more moral than others, he said.

"Social norms of all types are going to be useful to minimize all sorts of bad behaviour by firms," he said.

The paper is forthcoming in the Journal of Financial and Quantitative Analysis.

Related Stories

Company managers wondering if they should disclose their involvement in environmentally and socially responsible ventures might first want to observe how many people near their headquarters attend church.

Some people are deeply religious and others not at all. Evolutionary psychologists are interested in determining the functions of religiosity in social life that lead to this diversity. Two camps within the discipline have ...

New research from University of Copenhagen shows that Danes are not abandoning their communal Protestant religion in favor of individualized spirituality such as meditation and mindfulness; the support for Christian faith ...

Religious college students report less alcohol use than their classmates – and the reason may have to do with how their parents handle stress, according to new research by a Michigan State University scholar.

Egypt's Ministry of Antiquities says American archeologists have discovered a 3000-year-old tomb with beautifully painted walls belonging to a nobleman who guarded the temple of the ancient deity Amun.

A partial human skull unearthed in 2008 in northern Israel may hold some clues as to when and where humans and Neanderthals might have interbred. The key to addressing this, as well as other important issues, ...

User comments : 6

"businesses with head offices in places with high levels of "religiosity" were less likely to experience stock price crashes as a result of not disclosing bad financial news. And it didn't matter whether those at the top were religious or not. Just being in a town where social norms are influenced by religious codes of behaviour was enough to rub off on the companies operating there"

-No, it is more evidence for miracles and the FACT that gods grace skips over godless enterprises to slide down the chimneys of the righteous only. Similar to Passover but in reverse, sort of.

You can tell that this article was written by a heathen scientist. No cookies and milk for HIM. Providence is REAL goddammit!

If they have the cojones, the next obvious step would be to break it down by religion. Or if only Christians were examined, by denomination.

Reading of mixing religion and business brings to mind a particularly venal practice: Promoting your religious affiliation as you sell yourself (i.e. "use us, buy from us, we're Christian!"). Business owners who feel the need to market their religious affiliation are nothing more than money changers in the temple. Trying to leverage their religion into profit.

The fatal pretext of this article is that "news" drives stock price. In practice news is merely advertising. News is something the seller gives the buyer so as to motivate him into making a transaction. The seller will likely be ahead in the game. The buyer will likely be behind

The means by which religion factor into this knowledge disequilibrium depends upon the tactics. Typically the seller will use religion as part of his marketing, while the buyer will use religion in his justification. Religion no panacea. There is no more honesty in religion than the trading pits. The secretive silence of xtians about pedastry illustrates that religion operates in the shadows

We'll see how good the study is and what it really says. I doubt secular societies like Sweden has any difference in profit from stock price crashes, or their stock markets would see the money go elsewhere.

That social norms makes the difference may be a fact, but it has to be checked out. Meanwhile we know from statistics that there are structural differences between religious societies and others, in that religious tend to invest in religious businesses while seculars are agnostic about investment. Meaning religious societies are much more keen on ingroup policing. This study likely can't control for such factors.

Please sign in to add a comment.
Registration is free, and takes less than a minute.
Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.

Javascript is currently disabled in your web browser. For full site functionality, it is necessary to enable Javascript.
In order to enable it, please see these instructions.